FedNow will be an innovative leap that would allow users to transfer funds in seconds. The US Federal Reserve plans to compete with other established payment systems.
The US Federal Reserve (FED) intends to launch the first stage of its new FedNow payment system in 2023 or 2024. The organization seeks to promote its digital transformation through this project.
If the Fed launches it within 3 or 4 years, FedNow would then have taken a decade to crystallize. The agency launched its initiative Strategies to Improve the US Payment System in 2013.
In early August, FED Governor Lael Brainard revealed details of the plan. She said that they are working on the development of an instant payment platform, with the widely accessible 24x7x365 format. With this, it seeks to modernize the US payment system and bring the benefits of instant payments to communities throughout the country.
The FED considers that FedNow Service would represent an expansive advance compared to the current system. It closes for a few hours every day, as well as on weekends and holidays, thus offering restricted hours of operation. With the help of technology, the system will allow people and companies to transfer funds in a matter of seconds and at any time, as more modern platforms such as Bitcoin currently do.
Through its website, FED states that thanks to more than 10,000 affiliated financial institutions throughout the country, it can develop a real-time payment system that virtually all US banks can access.
This means that FedNow will be a real-time gross settlement system (RGTS). It is a fund transfer system that allows instant transfer of money or securities. This is the continuous payment settlement procedure by individual order without compensating for debits and credits on the books of a central bank. Once completed, real-time gross settlement payments are final and irrevocable.
Additionally, FedNow will be a retail system. The limit in US dollars to make payments will be USD 25,000. The FED promises to examine that limit as the system unfolds and matures, as official documents state.
FED Haste to Transform Its Payment System
During the Federal Reserve Board of Governors, Brainard spoke of the need for the nation to have a real-time payment system. She believes that the current system, with checks, compensation payments, and high transaction costs, has not been able to respond more efficiently to the economic emergency that the COVID-19 pandemic has caused in the country.
Since the World Health Organization declared the coronavirus a pandemic, the FED has allocated billions of US dollars in stimulus funds and relief to US citizens in need of financial assistance. The process may have been more efficient if they had FedNow.
Brainard stressed that the FED would stimulate healthy competition in the real-time payments space and promote efficiencies related to pricing, quality of service, and innovation through the use of FedNow Service.
Similarities between FedNow and Bitcoin
There are three characteristics in which FedNow is similar to Bitcoin. The Federal Reserve’s payment system will be available without time limits, 24 hours a day, seven days a week, every day of the year, and without holidays. It will be a real-time settlement system; the payments will occur irreversibly.
The network is permanently available to pay with Bitcoin. It is possible to make or receive payments on the network regardless of the day or time. As there are no intermediaries to conduct the transactions, there are no holidays, strikes, or bank hours. Likewise, payments in Bitcoin undergo a real-time and irreversible process.
By Willmen Blanco
